SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
LJ INTERNATIONAL INC.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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LJ INTERNATIONAL INC.
Unit #12, 12/F, Block A
Focal Industrial Center
21 Man Lok Street
Hung Hom, Kowloon, Hong Kong
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held Wednesday, December 15, 1999
To the Shareholders:
PLEASE TAKE NOTICE that our annual meeting of shareholders will be held at
the Company's Shenzhen office, 10th Floor, Block 18, Free Trade Zone, Sha Tou
Jiao, Shenzhen, People's Republic of China, on Wednesday, December 15, 1999, at
3:00 p.m., local time, for the following purposes:
1. To elect four directors to hold office for the term specified in the
proxy statement or until their successors are elected and qualified;
2. To approve an amendment to our 1998 Stock Compensation Plan increasing
the authorized number of shares of common stock from 2,000,000 to 4,000,000 (the
"1998 Stock Compensation Plan Amendment Proposal");
3. To approve an amendment to our Memorandum of Association to provide
that the authorized capital shall be restated to be made up of two classes of
shares divided into 80,000,000 shares of common stock, US$0.01 par value, and
20,000,000 shares of preferred stock, US$0.01 par value (the "Authorization of
Preferred Stock Proposal");
4. To ratify and approve the Securities Purchase Agreement, dated October
29, 1999, and all transactions contemplated thereby, including the issuance of
up to $10,500,000 of convertible debentures and all shares issuable upon
conversion thereof (the "Sale of Convertible Debentures Proposal"); and
5. To transact such other business as may properly come before the
meeting or any adjournment.
The board of directors has fixed the close of business on November 9, 1999,
as the record date for the determination of shareholders entitled to notice of
and to vote at the meeting and at any adjournment. A proxy statement which
describes the foregoing proposals and a form of proxy accompany this notice.
By Order of the Board of Directors
Ka Man Au
Secretary
Dated: November 17, 1999
IMPORTANT
Whether or not you expect to attend the meeting, please execute the
accompanying proxy and return it promptly in the enclosed reply envelope which
requires no postage. If you grant a proxy, you may revoke it at any time prior
to the meeting. Also, whether or not you grant a proxy, you may vote in person
if you attend the meeting.
LJ INTERNATIONAL INC.
Unit #12, 12/F, Block A
Focal Industrial Center
21 Man Lok Street
Hung Hom, Kowloon, Hong Kong
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held Wednesday, December 15, 1999
SOLICITATION OF PROXY
The accompanying proxy is solicited on behalf of the board of directors of
LJ International Inc. for use at our annual meeting of shareholders to be held
at the Company's Shenzhen office, 10th Floor, Block 18, Free Trade Zone, Sha Tou
Jiao, Shenzhen, People's Republic of China, on Wednesday, December 15, 1999, and
at any adjournment. In addition to mails, proxies may be solicited by personal
interview, telephone or telegraph by our officers, directors and other
employees, who will not receive additional compensation for such services. We
may also request brokerage houses, nominees, custodians and fiduciaries to
forward the soliciting material to the beneficial owners of stock held of record
and will reimburse them at the rates suggested by the New York Stock Exchange.
We will bear the cost of this solicitation of proxies, which are expected to be
nominal. Proxy solicitation will commence with the mailing of this proxy
statement on or about November 17, 1999.
Execution and return of the enclosed proxy will not affect your right to
attend the meeting and to vote in person. If you execute a proxy, you still
retain the right to revoke it at any time prior to exercise at the meeting. A
proxy may be revoked by delivery of written notice of revocation to our
Secretary, by execution and delivery of a later proxy or by voting the shares in
person at the meeting. A proxy, when executed and not revoked, will be voted in
accordance with its instructions. In the absence of specific instructions,
proxies will be voted "FOR" the election as directors of those nominees named in
the proxy statement, "FOR" the proposal to approve an amendment to our 1998
Stock Compensation Plan, "FOR" the proposal to approve an amendment to our
Memorandum of Association to authorize a new class of preferred stock, "FOR" the
proposal to ratify and approve our sale of up to $10.5 million of convertible
debentures, and in accordance with his best judgment on all other matters that
may properly come before the meeting.
The enclosed form of proxy provides a method for shareholders to withhold
authority to vote for any one or more of the nominees for director while
granting authority to vote for the remaining nominees. The names of all
nominees are listed on the proxy. If you wish to grant authority to vote for
all nominees, check the box marked "FOR." If you wish to withhold authority to
vote for all nominees, check the box marked "WITHHOLD." If you wish your shares
to be voted for some nominees and not for one or more of the others, check the
box marked "FOR" and indicate the name(s) of the nominee(s) for whom you are
withholding the authority to vote by writing the name(s) of such nominee(s) on
the proxy in the space provided.
PURPOSE OF MEETING
As stated in the notice of annual meeting of shareholders accompanying this
proxy statement, the business to be conducted and the matters to be considered
and acted upon at the meeting are as follows:
1. To elect four directors to hold office for the term specified herein
or until their successors are elected and qualified;
2. To approve an amendment to our 1998 Stock Compensation Plan increasing
the authorized number of shares of common stock from 2,000,000 to 4,000,000 (the
"1998 Stock Compensation Plan Amendment Proposal");
3. To approve an amendment to our Memorandum of Association to provide
that the authorized capital shall be restated to be made up of two classes of
shares divided into 80,000,000 shares of common stock, US$0.01 par value, and
20,000,000 shares of preferred stock, US$0.01 par value (the "Authorization of
Preferred Stock Proposal");
4. To ratify and approve the Securities Purchase Agreement, dated October
29, 1999, and all transactions contemplated thereby, including the issuance of
up to $10,500,000 of convertible debentures and all shares issuable upon
conversion thereof (the "Sale of Convertible Debentures Proposal"); and
5. To transact such other business as may properly come before the
meeting or any adjournment.
VOTING AT MEETING
Our voting securities consist solely of common stock, $.01 par value per
share.
The record date for shareholders entitled to notice of and to vote at the
meeting is the close of business on November 9, 1999, at which time we had
outstanding and entitled to vote at the meeting 6,365,646 shares of common
stock. Shareholders are entitled to one vote for each share of common stock
held in their name on the record date. Shareholders representing a majority of
the common stock outstanding and entitled to vote must be present or represented
by proxy to constitute a quorum.
The election of directors, approval of the 1998 Stock Compensation Plan
Amendment Proposal and approval of the Sale of Convertible Debentures Proposal
each will require the affirmative vote of the holders of a majority of the
common stock present or represented by proxy at the meeting and entitled to
vote. Cumulative voting for directors is not authorized and proxies cannot be
voted for more than four nominees. Approval of the Authorization of Preferred
Stock Proposal will require the affirmative vote of the holders of 75% of our
common stock outstanding and entitled to vote at the meeting.
Yu Chuan Yih, our Chairman and principal shareholder, has entered into an
agreement with the investor under the Securities Purchase Agreement to vote all
of his shares held by him as of the record date, representing 59.2% of the
outstanding shares, in favor of the Sale of Convertible Debentures Proposal.
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STOCK OWNERSHIP
The following table sets forth the number of shares of common stock owned
as of September 1, 1999 by each person known by us to have owned more than ten
percent of our shares then outstanding, by each of our current officers,
directors and nominee-directors, and by all of our officers and directors as a
group. As far as is known to our management, no person owned more than ten
percent of our outstanding shares of common stock as of September 1, 1999 except
as set forth below.
Name of Shareholder Number Percent
- ------------------- ------------- -----------
Shares Beneficially Owned
--------------------------
Yu Chuan Yih 3,787,200 59.5%
Ka Man Au 0
Joseph Tuszer 0
Hon Tak Ringo Ng 0
Po Yee Elsa Yue 0
Lionel C. Wang 0
All directors and executive officers as a group (6 persons) 3,787,200 59.5%
___________
Of Mr. Yih's 3,787,200 shares, 1,500,000 shares are owned of record by
Pacific Growth Developments Ltd., a British Virgin Islands corporation which is
owned by Mr. Yih (60%), his wife Tammy Yih (20%) and an adult daughter, Bianca
Tzu Hsiu Yih (20%). In addition, Mr. Yih is the sole shareholder of the
following three British Virgin Islands corporations which own shares of our
common stock as follows: Welgram International Limited - 236,000 shares;
Sunflower Gold Holdings Limited -235,000 shares; and Panama Gold Holdings
Limited - 235,000 shares.
BOARD OF DIRECTORS
Our board of directors has the responsibility for establishing broad
corporate policies and for our overall performance, although it is not involved
in day-to-day operating details. The board meets regularly throughout the year,
including the annual organization meeting following the annual meeting of
shareholders, to review significant developments affecting us and to act upon
matters requiring board approval. It also holds special meetings as required
from time to time when important matters arise requiring board action between
scheduled meetings. During the last fiscal year, the board met six times.
We have established an audit committee, which consists of Messrs. Yih, Lai
and Wang. Its functions are to:
. recommend annually to the board of directors the appointment of our
independent public accountants;
. discuss and review the scope and the fees of the prospective annual audit
and review the results with the independent public accountants;
. review and approve non-audit services of the independent public
accountants;
. review compliance with our existing accounting and financial policies;
. review the adequacy of our financial organization; and
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. review our management's procedures and policies relative to the adequacy of
our internal accounting controls and compliance with federal and state laws
relating to financial reporting.
The Audit Committee met once during the fiscal year ended April 30, 1999.
We do not have a nominating committee. The functions customarily
attributable to a nominating committee are performed by the board of directors
as a whole.
No director attended fewer than 75 percent of the aggregate of the total
number of meetings of the board of directors and the total number of meetings
held by all committees of the board on which he served.
Each non-employee director is compensated separately for service on the
board and is reimbursed for expenses to attend board meetings.
ELECTION OF DIRECTORS
At the meeting, four directors are to be elected. Each director will be
elected for a one-year term or until his successor is elected and qualified.
Shares represented by properly executed proxies will be voted, in the
absence of contrary indication or revocation by the shareholder granting such
proxy, in favor of the election of the persons named below as directors. The
person named as proxy has been designated by management and intends to vote for
the election to the board of directors of the persons named below, each of whom
(except Ms. Yue) is now a director of the Company. If any nominee is unable to
serve as a director, the shares represented by the proxies will be voted, in the
absence of contrary indication, for any substitute nominee that management may
designate. We know of no reason why any nominee would be unable to serve. The
information presented with respect to the nominees was obtained in part from
each of them and in part from our records.
Nominees for Election as Directors
Name Age Position
- ---- --- --------
Yu Chuan Yih........ 60 Chairman of the Board of Directors, President and Chief
Executive Officer
Ka Man Au........... 35 Executive Vice President, Secretary and Director
Lionel C. Wang...... 43 Non-Executive Director
Po Yee Elsa Yue..... 35 Non-Executive Director Nominee
None of the directors and officers was selected pursuant to any agreement
or understanding with any other person. There is no family relationship between
any director or executive officer and any other director or executive officer.
Mr. Yih established the business of Lorenzo Jewelry Mfg. (HK) Ltd. and has
served as its president and managing director since 1987. Mr. Yih is primarily
responsible for our business
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development and overall management. He has over 20 years of experience in semi-
precious stone production and marketing. Mr. Yih has been a gemstone trader in
Brazil and has extensive experience and relationships in gem sourcing and
jewelry design. Mr. Yih is also president of the Hong Kong branch of the
Gemological Institute of America (GIA), the nonprofit educational organization
for the jewelry industry.
Ms. Au has served as a director of Lorenzo Jewelry Mfg. (HK) Ltd. since its
incorporation in 1987. Ms. Au is primarily responsible for our general
administration, human resources, operations and management.
Mr. Wang has served us as a non-executive director since June 1998. He
received his Bachelor of Commerce from Tamkung University, Taipei, Taiwan in
1978, his Master of Business Administration from California State Polytechnic
University in 1980 and his Master of Science from Stanford University in 1981.
From 1984 to 1990, Mr. Wang served as marketing research analyst and senior
strategic planning analyst for The Gillette Company, Boston, Massachusetts.
From 1990 to 1995, he served as associate director and then director of product
development for Information Resources, Inc., Waltham, Massachusetts. From 1995
to 1996, Mr. Wang served as vice-president as Nielsen North America with
responsibility for analytical and modeling projects on Kraft Foods/White Plains
account. Since 1996, Mr. Wang has served as director of analytical services for
The NPD Group, Inc., Port Washington, New York.
Ms. Yue is a non-executive director nominee. She is a graduate gemologist
from the Gemology Institute of America and has served as vice president of GIA,
Hong Kong since August 1994.
Compensation of Directors and Executive Officers
The aggregate compensation paid by us to all of our directors and executive
officers as a group for the fiscal year ended April 30, 1999 on an accrual
basis, for services in all capacities, was HK$4,038,000 (US$522,000). During the
fiscal year ended April 30, 1999, we contributed an aggregate amount of
HK$55,000 (US$7,000) toward the pension plans of our directors and executive
officers.
Executive Service Contract
We entered into an employment agreement with Mr. Yu Chuan Yih effective
October 1, 1997 for a period of three years at an annual salary of HK$1,600,000
(US$207,000). Mr. Yih's remuneration package includes benefits with respect to
a motor car. In addition, Mr. Yih will be entitled to an annual management bonus
of a sum to be determined by the board at its absolute discretion having regard
for our operating results and the performance of Mr. Yih during the relevant
financial year. The amount payable to Mr. Yih will be decided by majority
decision of the members of the board present in the meeting called for that
purpose, provided that Mr. Yih shall abstain from voting and not be counted in
the quorum in respect of the resolution regarding the amount so payable to him.
The 1998 Stock Compensation Plan
Effective June 1, 1998, we adopted and approved the 1998 Stock Compensation
Plan. The purpose of the plan is to encourage ownership of our common stock by
our officers, directors, employees and advisors to provide additional incentive
for them to promote our success and our business and to encourage them to remain
in our employ by providing them an opportunity to benefit from any
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appreciation of our common stock through the issuance of stock options. Options
constitute either incentive stock options within the meaning of Section 422 of
the United States Internal Revenue Code of 1986, as amended, or options which
constitute nonqualified options at the time of issuance of such options. The
plan provides that incentive stock options and/or nonqualified stock options may
be granted to our officers, directors, employees and advisors selected by the
compensation committee. A total of 2,000,000 shares of common stock are
authorized and reserved for issuance during the term of the plan which expires
in June 2008. The compensation committee has the sole authority to interpret the
plan and make all determinations necessary or advisable for administering the
plan. The exercise price for any incentive option must be at least equal to the
fair market value of the shares as of the date of grant. Upon the exercise of
the option, the exercise price must be paid in full either in cash, shares of
our stock or a combination. If any option is not exercised for any reason, such
shares shall again become available for the purposes of the plan.
As of April 30, 1999, we granted a total of 1,285,000 options exercisable
at $5.00 per share anytime until April 11, 2009, including an aggregate of
575,000 options to our officers and directors as a group.
THE BOARD OF DIRECTORS RECOMMENDS TO OUR SHAREHOLDERS THAT THEY VOTE "FOR"
THE ELECTION OF SUCH NOMINEES.
CERTAIN TRANSACTIONS
Yu Chuan Yih, our president and chairman, is a director and principal
shareholder of Gemological Institute of America, Hong Kong Limited; Italon
Limited; Lorenzo Consultant & Investment (China) Limited; and Hong Kong Brasil
Lapidary Limited. During the fiscal years ended April 30, 1997, 1998 and 1999,
Mr. Yih and these affiliated companies received unsecured advances from, and
made unsecured advances to, us which were interest free and repayable on demand.
During the fiscal year ended April 30, 1998, we sold an investment property
to Mr. Yih at its appraised value of HK$3,800,000 (US$492,000), resulting in a
gain to us of HK$2,904,000 (US$376,000). The sale price of the property was
based on a valuation report prepared by an independent professional property
valuer.
During the fiscal year ended April 30, 1999, we sold finished goods of
HK$74,000 (US$10,000) to Gemological Institute of America, Hong Kong Limited and
Hong Kong Brasil Lapidary Limited, which were made according to the published
prices and conditions offered to our major customers. In addition, we provided
a guarantee to a bank in respect of mortgage loans granted to Yu Chuan Yih to
the extent of HK$4,882,000 (US$632,000).
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ADDITIONAL MATTERS TO BE VOTED UPON BY SHAREHOLDERS
THE 1998 STOCK COMPENSATION PLAN AMENDMENT PROPOSAL
Our board of directors and our shareholders have adopted and approved the
1998 Stock Compensation Plan. We believe that the plan is accomplishing its
purpose which is to promote our and your interests by providing key employees
with an opportunity to acquire a proprietary interest in us and to develop a
stronger incentive to put forth maximum effort for our continued success and
growth. In addition, the opportunity to acquire a proprietary interest in us
aids us in attracting and retaining key personnel of outstanding ability.
We believe that an increase in the number of shares available for grant
under the plan is necessary to continue accomplishing its purpose. As of
November 9, 1999, only 715,000 shares remained available for grant during the
remaining term of the plan through June 2008. Accordingly, we have approved an
amendment to increase the number of shares of common stock subject to the plan
from 2,000,000 shares to 4,000,000 shares, subject to approval of our
shareholders.
THE BOARD OF DIRECTORS RECOMMENDS TO OUR SHAREHOLDERS THAT THEY VOTE "FOR"
THE ADOPTION OF THE AMENDMENT TO THE 1998 STOCK COMPENSATION PLAN.
THE AUTHORIZATION OF PREFERRED STOCK PROPOSAL
Our board of directors has approved, subject to shareholder approval, an
amendment to our Memorandum of Association to provide that the authorized
capital shall be restated to be made up of two classes of shares divided into
80,000,000 shares of common stock, US$0.01 par value, and 20,000,000 shares of
preferred stock, US$0.01 par value ("Preferred Stock") and authorize the board
of directors, without any vote or action by the shareholders, to cause Preferred
Stock to be issued in series with such voting rights and such designations,
preferences, limitations, restrictions and relative rights as the board may
determine. Our board of directors has directed that the proposed amendment be
submitted to a vote of our shareholders at this meeting.
We believe that it is desirable and in our and your best interests that we
have the flexibility to issue shares of Preferred Stock in series and to fix the
terms of each series, without seeking further shareholder approval, except as
otherwise provided by law. We may use authorized Preferred Stock for various
corporate purposes, including possible future financing and acquisition
transactions, possible recapitalization through a stock split or stock dividend,
issuance of additional stock options or awards, and other corporate purposes.
If the proposed amendment is approved, we would be authorized to issue
these shares of Preferred Stock in one or more series with such voting powers,
designations, and relative, participating, optional or other special rights as
we may determine in our sole discretion, without further authorization by our
shareholders. Our shareholders will not have preemptive rights to subscribe for
shares of Preferred Stock.
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We cannot determine the actual effect of the Preferred Stock on your rights
as shareholders until we create a series of Preferred Stock and determine the
rights of the holders of such series. However, such effects might include:
. restrictions on the payment of dividends to holders of the common stock;
. dilution of your voting power if the holders of shares of Preferred Stock
are given voting rights;
. dilution of your equity interests and voting power if the Preferred Stock
is convertible into common stock; and
. restrictions upon any distribution of assets to the holders of the common
stock upon liquidation or dissolution until the satisfaction of any
liquidation preference granted to the holders of Preferred Stock.
We currently do not have any agreements, plans or arrangements for the
issuance of any shares of Preferred Stock.
The adoption of the proposed amendment to our Memorandum of Association
could have the effect of discouraging attempts to acquire control of us. We
have no knowledge of any present effort to accumulate our securities or to
obtain control of us. We have no plans at the present time to submit to our
shareholders for approval or take any other action with respect to any
proposals, other than the proposed amendment to our Memorandum of Association,
that might be deemed to have an anti-takeover effect. In our judgment, there
are now no provisions in our Memorandum of Association or Articles of
Association that could be viewed as having, to a significant extent, such an
effect other than (a) provisions in our Memorandum of Association providing that
vacancies in our board of directors may be filled by a majority of our remaining
directors, and (b) provisions providing for the acceleration of the
exercisability of options in certain circumstances. There is no inter-
relationship between the existing provisions and the proposed amendment.
Clause 9 of our Memorandum of Association is proposed to be amended to read
in its entirety as follows:
"The authorized capital is made up of two classes of shares
divided into 80,000,000 shares of common stock, US$0.01 par
value, and 20,000,000 shares of preferred stock, US$0.01 par
value. The Board of Directors is vested with the authority to
authorize by resolution from time to time the issuance of the
preferred shares in one or more series and to prescribe the
number of preferred shares within each such series and the voting
powers, designations, preferences, limitations, restrictions and
relative rights of each such series."
THE BOARD OF DIRECTORS RECOMMENDS TO OUR SHAREHOLDERS THAT THEY VOTE "FOR"
THE APPROVAL AND ADOPTION OF THE AUTHORIZATION OF PREFERRED STOCK PROPOSAL.
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THE SALE OF CONVERTIBLE DEBENTURES PROPOSAL
On October 29, 1999, we entered into a Securities Purchase Agreement with
an accredited investor pursuant to which we agreed to issue and the investor
agreed to purchase up to $10,500,000 of our 3% Convertible Debentures, as well
as common stock purchase warrants. On November 5, 1999, pursuant to the
Securities Purchase Agreement, we issued and the investor purchased $3,000,000
of our 3% Convertible Debentures, as well as 45,000 common stock purchase
warrants. Our shareholders are being asked to ratify and approve the Securities
Purchase Agreement, and the exhibits thereto, dated October 29, 1999, and all
transactions contemplated thereby and all shares issuable upon conversion,
including the issuance of $3,000,000 of our 3% Convertible Debentures and 45,000
common stock purchase warrants on November 5, 1999, in order to satisfy certain
listing requirements under The Nasdaq Marketplace Rules for continued listing of
our common stock on The Nasdaq Stock Market National Market System.
The following summarizes the terms of the transaction and is qualified in
its entirety by the Securities Purchase Agreement and the exhibits thereto, a
copy of which is attached hereto as Appendix A and incorporated by reference
herein. Shareholders are encouraged to review the attached Agreement and its
exhibits.
Pursuant to the authorization of our board of directors, our management
negotiated and executed the Securities Purchase Agreement pursuant to which the
investor agreed under certain terms and conditions to invest up to $10,500,000
in our 3% Convertible Debentures. Additionally, we agreed, among other things,
to issue to the investor warrants to purchase our common stock (the "Warrants").
On November 5, 1999, we issued to the investor $3,000,000 of Debentures due
November 5, 2002 and Warrants to purchase 45,000 shares of our common stock at
an exercise price of $3.75 per share with an expiration date of November 5,
2004.
The terms and conditions of the Debentures are summarized as follows:
. The interest rate on the Debentures is 3% per annum, payable twice
annually in cash or in shares of our common stock.
. The date of maturity for the $3,000,000 Debenture which we issued is
November 5, 2002.
. The Debenture is convertible into shares of our common stock at the lesser
of the Fixed Conversion Price or the Variable Conversion Price.
. The Fixed Conversion Price is the greater of:
. $5.00 per share or
. 125% of the average closing bid price of the common stock for
the 15 trading days ending on the trading day immediately before
the November 5, 1999 Initial Closing Date.
. The Variable Conversion Price means 92% of the average of the two
lowest closing bid prices of the common stock during the 20 trading
days immediately prior to conversion.
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In no event (subject to certain exceptions, including a Company default
under any Debenture or the Agreement) shall the investor be entitled to convert
any Debenture to the extent that, after such conversion, the sum of (1) the
number of shares of common stock beneficially owned by the investor and its
affiliates, and (2) the number of shares of common stock issuable upon the
conversion of the Debenture would result in beneficial ownership by the investor
and its affiliates of more than 4.9% of the outstanding shares of common stock.
The Securities Purchase Agreement also has the following additional terms:
. We are required by the terms of the Registration Rights Agreement entered
into concurrently with the Securities Purchase Agreement to file after the
closing date with the Securities and Exchange Commission a registration
statement to register the common stock issuable upon conversion of the
Debentures and exercise of the Warrants to allow the investor to resell
such common stock to the public.
. Under the terms of the Agreement, we are subject to certain cash penalties
if we are unable to deliver to the investor the common stock receivable
upon conversion of the Debentures in a timely fashion.
Our common stock is traded on the over-the-counter market and is quoted on
The Nasdaq Stock Market National Market System. In order to qualify for
inclusion in The Nasdaq Stock Market National Market System, we need to satisfy
certain financial and other criteria set forth in The Nasdaq Marketplace Rules
(the "Rules"). In addition, in order to maintain such inclusion under the
Rules, we must, among other things, follow certain corporate governance
procedures, including obtaining shareholder approval in connection with certain
corporate transactions.
Rule 4460(i) of the Rules requires shareholder approval of the issuance of
securities by an issuer under various circumstances. In particular, Subsection
(1)(D) of paragraph (i) requires shareholder approval prior to the issuance of
securities in the following situations:
(D) In connection with a transaction other than a public offering
involving:
(i) the sale or issuance by the issuer of common stock (or
securities convertible into or exercisable for common stock) at a
price less than the greater of book or market value which together
with sales by officers, directors or substantial shareholders of the
company equals 20% or more of common stock or 20% or more of the
voting power outstanding before the issuance; or
(ii) the sale or issuance by the company of common stock (or
securities convertible into or exercisable for common stock) equal to
20% or more of the common stock or 20% or more of the voting power
outstanding before the issuance for less than the greater of book or
market value of the stock.
Pursuant to the terms of Securities Purchase Agreement, the Debenture is
convertible into shares of common stock at the lesser of (i) the Fixed
Conversion Price or (ii) 92% of the average of the two lowest closing bid prices
of the common stock during the 20 trading days prior to conversion. As a
result, the shares of common stock to be issued upon conversion of the Debenture
will be issued, if at all, for less than the greater of book or market value of
such shares. Pursuant to the terms of the
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Securities Purchase Agreement, we issued $3,000,000 of Debentures on November 5,
1999. As of such date, we believe that the shares on an as-converted basis
represented less than 20% of our issued and outstanding common stock and,
accordingly, did not require shareholder approval under the applicable Rules.
Nonetheless, under the terms of the Securities Purchase Agreement, we have
agreed to take all steps necessary to obtain the approval of our shareholders
regarding authorization of our issuance to the holders of our Debentures of
shares of common stock in excess of 20% of the outstanding shares of common
stock. The conversion of any additional Debentures to be issued up to an
aggregate of $10,500,000 and/or the exercise of the Warrants may likely result
in the aggregate issuance of shares of our common stock in excess of the Nasdaq
Rule. Such issuances will require us to obtain the consent of our shareholders.
THE BOARD OF DIRECTORS RECOMMENDS TO OUR SHAREHOLDERS THAT THEY VOTE "FOR"
THE APPROVAL AND RATIFICATION OF THE SALE OF CONVERTIBLE DEBENTURES PROPOSAL.
INDEPENDENT PUBLIC ACCOUNTANTS
A representative of Moores Rowland Hong Kong will attend the meeting and
will have the opportunity to make a statement if he so desires. This
representative will be available to respond to appropriate shareholder questions
at that time.
PROPOSALS OF SHAREHOLDERS FOR PRESENTATION
AT NEXT ANNUAL MEETING OF SHAREHOLDERS
Any shareholder of record who desires to submit a proper proposal for
inclusion in the proxy materials relating to the next annual meeting of
shareholders must do so in writing and it must be received at our principal
executive offices by April 29, 2000. You must be a record or beneficial owner
entitled to vote at the next annual meeting on your proposal and must continue
to own such security entitling you to vote through the date on which the meeting
is held.
ANNUAL REPORT
Our annual report to shareholders concerning our operations during the
fiscal year ended April 30, 1999, including audited financial statements, has
been distributed to all record holders as of the record date. The annual report
is not incorporated in the proxy statement and is not to be considered a part of
the soliciting material.
OTHER BUSINESS
Our management is not aware of any other matters which are to be presented
at the meeting, nor have we been advised that other persons will present any
such matters. However, if other matters properly come before the meeting, the
individual named in the accompanying proxy shall vote on such matters in
accordance with his best judgment.
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AVAILABILITY OF ANNUAL REPORT ON FORM 20-F
UPON WRITTEN REQUEST, WE WILL PROVIDE, WITHOUT CHARGE, A COPY OF OUR ANNUAL
REPORT ON FORM 20-F FOR THE FISCAL YEAR ENDED APRIL 30, 1999 TO EACH SHAREHOLDER
OF RECORD OR TO EACH SHAREHOLDER WHO OWNED OUR COMMON STOCK LISTED IN THE NAME
OF A BANK OR BROKER, AS NOMINEE, AT THE CLOSE OF BUSINESS ON NOVEMBER 9, 1999.
ANY REQUEST BY A SHAREHOLDER FOR OUR ANNUAL REPORT ON FORM 20-F SHOULD BE SENT
TO OUR SECRETARY, LJ INTERNATIONAL INC., UNIT #12, 12/F, BLOCK A, FOCAL
INDUSTRIAL CENTER, 21 MAN LOK STREET, HUNG HOM, KOWLOON, HONG KONG.
The above notice and proxy statement are sent by order of our board of
directors.
KA MAN AU
Secretary
November 17, 1999
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